What's the difference between ESOP and ESOW in Singapore?

Tessa Hawthorn
March 9, 2023

Decisions, decisions. We know startup founders in Singapore have enough to consider while building their businesses, so we've laid out all the information out to make it easier.

An Employee Stock Option Plan (ESOP) is a special type of ESOW that gives employees or advisors the right to purchase shares in the company at a predefined price within a specific time period.

Generally, ESOPs are the most popular method of granting employee ownership for startup companies. So let's get into why.

Less admin

They require much less admin. Under an ESOW, the employees are issued stocks upfront, which are then subject to vesting. If the employee does not satisfy the Vesting requirements, the company is able to buy those stocks back at a nominal value ($1).

However, if, for example, a company offers Stocks under an ESOW to 15 employees, and only 5 of those employees satisfy all of the Vesting requirements, the company would be required to conduct Stock buy-backs for each of the 10 employees where the Vesting criteria was not met.

This can be a time consuming process, as it will require members resolutions, buy-back agreements, and updates to your country’s regulator (if any).

Comparatively, ESOPs are less of a headache. If Option-holders don’t meet the Vesting requirements, the Options will simply Lapse, and can then be recycled into the Option pool to be used for further offers. Simple.

No upfront payment

Under an ESOP, the Option-holder is not required to pay anything up-front to accept the offer.

Under an ESOW, Fair Market Value must be paid for the Stocks on acceptance of the offer. This can sometimes cause confusion and delays, and ultimately might make the offer feel less like a slice of cake and more like a plate of vegetables.

With an ESOP, the Option-holder only pays when it Exercises the Option, and it is often a nominal value. A company may be able to set the Exercise Price at $0.01 per option, even where the company is doing very well, if the relevant tax rules in your jurisdiction allow for it.

No two companies are the same, so it is important to specifically consider your own staff, and your plans for the next few years.

If ESOP sounds like the right move for you, get in touch today. On average, our solution takes 85% less time and costs 90% less money than the average DIY equivalent.

Equity can be faster, simpler, and easier -- dare we say it, a piece of cake, with our end-to-end platform that allows you to plan, create, approve and manage your ESOP.

Cake works closely with expert start-up lawyers and accountants in Singapore and around the world. If you want some extra advice, we can put you in touch with one of our partners.

If you liked this article, don't forget to download our comprehensive ESOP guide for founders in Singapore!

This blog is designed and intended to provide general information in summary form on general topics. The material may not apply to all jurisdictions. The contents do not constitute legal, financial or tax advice. The contents is not intended to be a substitute for such advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.

Tessa Hawthorn

Copywriter | Content Strategist | Lawyer

Equity management doesn't have to be complex. Start your free trial with Cake today.